Insolvency Bill : Reviewing 36 -year old law to save businesses

The major challenge facing a troubled economy like that of Nigeria is how to attract new investors and sustain the old ones in business so as to create employment opportunities for the populace. It is for this reason that the major objective of the eighth Senate as enunciated in its legislative agenda is to reform the business environment in the country through a comprehensive review of legislations that affect the ease of doing business. The plan is to make Nigeria an investors’ preferred destination choice and thereby create employment and enhance socio-economic development.

In the bid to achieve this objective, the Senate held a Business Round-table Dialogue in which it engaged with the private sector, international financial institutions, development partners, the academia and professional groups. The result was the identification of a number of priority laws which are believed to be essential for creating a conducive environment for the growth of businesses. The plan is to make these laws comply with international standard and global best practices. The Senate has continued to work on the identified laws.

One of such priority laws already reviewed and passed is the Bankruptcy and Insolvency Act, 2016 which repeals the Bankruptcy Act No.16 of 1979. The new law was sponsored by Senator Barnabas Gemade and worked on by the Committee on Banking and other Financial Institutions led by Senator Rafiu Adebayo Ibrahim.

Bankruptcy, according to the report of the committee, is a term used to describe a state of insolvency regulated by statute providing for “the equitable distribution of available assets among creditors in such a manner that a honest debtor is discharged from future liabilities”. This then gives the debtor in financial difficulty an opportunity to make a fresh start.

To update the old law, the committee invited memoranda and also held a public hearing in which all stakeholders gathered to make contributions. It also initiated research on bankruptcy and insolvency in other jurisdictions as well as examine other relevant issues necessary to have an all-inclusive law.

The objective is to create an efficient and effective bankruptcy and insolvency regime that are necessary for the smooth-running of a modern economic systems and guarantees the fundamental rights, privileges and responsibilities of individuals and corporate entities engaged in contracts and financial relationships. The law is also expected to facilitate the remodelling of the financial and administrative structure of debtors in financial distress in order to allow the rehabilitation and continuation of the business. The law also seeks to enable the use of technology to analyse data, thereby accelerating procedures on bankruptcy and insolvency.

The new law also aims to create a balance of interest between debtor and creditor by allowing both a bankrupt regime and an effective re-organisation procedure. It also makes possible the ranking of all claims thereby ensuring an improved delivery of insolvency services and administration. Again, the protection of small and medium scale industries which constitute the bedrock of a developing economy like ours is a key objective of the new law.

As the Senate President, Dr. Abubakar Bukola Saraki advised the committee, the new law becomes a tool for better credit risk management and helps to make available credit. The new law is also aimed at changing the mindset of individuals who see loan from government-owned institutions as their own share of the national cake. The process of loan recovery, protection of rights of debtor and creditor, fair distribution of debtors assets among various creditors, regulation of insolvency as a profession and rehabilitation of the insolvent debtor are the other merits of the new law.

To achieve all the above, the new Bankruptcy and Insolvency Act makes provision for corporate and individual insolvency, provide for the rehabilitation of the insolvent debtor and create the Office of Supervisor of Insolvency. Also, its Clause 3 makes the Minister of Industry, Trade and Investment to take over all the roles previously assigned to the Minister of Finance because it was reasoned that the entire process of establishment and regulation of business organisations in the country including bankruptcy and insolvency is under the jurisdiction of the Ministry of Industry, Trade and Investments.

Also, the mention of the high court as court of first instance was replaced with the Federal High Court in line with constitutional provision. Even reference to Registrar of the Supreme Court in the old law was amended and replaced with “Registrar of the Federal High Court”. Also, Clause 4 (1) which defines what constitutes acts of bankruptcy was expanded to include two new sub-clauses: “when a debtor disposes any item of plant or machinery funded by the creditor in parts or wholly where such items are collateral without prior notice and express agreement of creditor” and “when a debtor relocates his business from known and unknown address without prior notification of the creditor with the intention of avoiding his obligation”.

Also, clause 71 (2) increased the number of days which a claimant shall be deemed to have abandoned or relinquished all his rights to or interest in the property to the trustee from 15 days to 30 days because the earlier period was too short for any meaningful transaction to be actualised. Similarly, publication of notice will now be in three national dailies to give it wider reach as provided in clause 93 (5) instead of “local newspaper” mentioned in the previous law. The Exclusion Clause 267 was also brought in accord with AMCON Act 2010 which provides for the supremacy of the latter law over any other enactment or law that may be inconsistent with its provisions.

While Part V of the law is designed to facilitate the rehabilitation and re-organisation of companies in financial difficulties, Part VIII provides for counselling services and examination of bankrupt companies. Part IX creates the office of the Supervisor of Insolvency and Licensing who would be obligated to assist in the formulation and implementation of the plan of re-organisation and claims of creditors. Part X provides for cross-border insolvencies.

These are indeed bold attempts to give relief to both the creditor and the debtor and create trust among them. And these are necessary ingredients for development of industries and creating of employment.

Olaniyonu is Special Adviser (Media and Publicity) to Senate President